The Law Society’s Council will, at its next meeting on 11 July consider Net Funding Requirement (“the NFR”) for the period commencing 1st November 2013.
The NFR is the sum of the revenue and capital budgets proposed for the operation of the Society, the Solicitors Regulation Authority, as well as the cost of providing shared services supporting the work of the SRA and the Society (eg finance, payroll, IT etc) termed Corporate Solutions.
The papers setting out the details of those budgets will be posted on the Society’s website
If you have any views on this, please communicate them to the local Council Member, Ian Kelcey.
Council will at the same meeting be asked to approve the SRA’s recommendations for the Compensation Fund contribution rate.
This year the Society was anxious, given the challenging economic conditions facing all parts of the profession, to ensure that the costs imposed on the profession were the minimum required whilst remaining prudent. It was our working preference that the group’s budget should be flat (2014 v 2013).
As you will see from the paper, the Board of the SRA have concluded that an increased budget is necessitated because of the regulatory demands on the SRA, albeit, that the proposed increase in their net expenditure budget from £37.010m in 2013 to £47.314m in 2014 will largely be funded by meeting the costs of possible interventions from monies currently held within the Compensation Fund.
For the Society its revenue budget will be flat or fall marginally from the previous year and its capital budgets will be reduced . Broadly similar arrangements will apply to the revenue elements of Corporate Solutions with an increase in capital budget (IT investment) above last year’s spending.
It is also thought appropriate that provision is made within the NFR to begin to build the funds necessary to meet the liabilities the profession carries in this the final year of the Assigned Risk Pool.
As you may recall, when the decision was taken to close the Assigned Risk Pool, part of those provisions provided that the Society would meet the first £0-10m of claims and expenses, with the qualifying insurers meeting the next £10m tranche, the Society being liable to meet the tranche between £20-30m, the qualifying insurers £30-40m and the Society £40-50m with any costs above that figure falling to the qualifying insurers.
It is considered unlikely that the costs and claims for the ARP will exceed £50m. It is considered more likely that the costs and claims expenses (which will emerge over many years) will be between £10m-£20m.
The Society proposes to levy £5m to meet this developing liability and any emerging costs during the current financial year.
The Society also believes it prudent to begin the rebuilding of reserves following a £20m net outflow from the Society’s reserves last year to fund emergency expenditure for PC renewal, and the cost of financing the move of the SRA to new premises in Birmingham.
The attached schedules provides a summary of the possible costs payable by firms or individuals if the proposed NFR and Contribution rate were adopted.
The Society will invite Council to establish a medium term policy from November 2014 for a 3 year term, whereby the costs will inflate each year by RPI -1.5% to drive out value from the recent investments the Society’s members have funded across the Group, and to deliver a “OFR – dividend” as the benefits asserted as part of the reasons for introducing OFR should begin to emerge.
Council faces an important responsibility in setting the NFR which is then submitted for approval by the Legal Services Board.
